Man, I sure am glad all our economic problems are solved now that new home sales are slightly up (though still way below where they used to be) on falling prices. It's a new day in America! These are some seriously bizarre times.
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Economy Party!
24 Mar 2008 06:10 pm
Comments (24)
Mr. Market seemed to think so as it jumped up a couple of percentage points.
Worth noting, Matt, is that falling home prices aren't a bad thing for everyone. A lot of people who were closed out of the housing market by the inflated prices, or should have been, will now have better deals available. As in every market, there are winner and losers. People who have owned their homes for a while and didn't decide to trade equity for more debt (the housing ATM phenomena), saw paper gains lead to paper losses. In other words, the boom and bust were meaningless in real terms for them.
Mr. Market seemed to think so as it jumped up a couple of percentage points
So, an increase of a percent or two indicates that "all our economic problems are solved"? The market can never, ever increase, no matter what, until all our economic problems are solved? The market must decrease each and every day until all our problems are solved?
You're saying that's Matthew's point?
The Treasury announced that this week they will auction a staggering $136 billion in bills and notes. Included in this is $20 billion in borrowing which was not anticipated only 2 months ago. Tax receipts are cratering. Those gigantic numbers are what drove long rates up today, not the BS given in the story about people moving into equities. That huge supply is going to be a problem for the system this week and understandably rates will move up to attract buyers.
Still, the big story is the collapse of the governments finances. This is due to the fact that since 02 at least $400 billion in tax receipts annually have come from the stupendous profits made in the financial industry and by corporate insiders taking gigantic pay and options, as well as hefty corporate profits. Those numbers are going to crater now, are cratering. Unless a miracle can be pulled off and they can resrurect the old bubbles or find new ones then a defict nearing a trillion a year rate is in the cards during the 09 fiscal year.
Norquist's dream is upon us.
Count me in. I'm also a little confused at what Matthew is getting at here.
Is somewhat neutral/positive news to be ignored? Must we as pessimistic as possible regardless of the data?
"You're saying that's Matthew's point?"
Nah. Do you think that was Matt's point?
The fun bit is that the news is focusing on the increase from last month, but the really important number is the huge drop from last year.
No. I don't know what Matthew's point was - hence the question in my initial comment.
After all, the negative information about the economy over the past few months has already been priced into the market. The new information from today is good, hence the market rising.
There's a lot of stupid happy talk out in the business news center. A lot people are calling the proverbial "bottom". Big Picture covered this earlier today:
http://bigpicture.typepad.com/comments/2008/03/bottom-callers.html
I've been listening to NPR all day, and they keep repeating that home sales are up "sharply" from Jan 08. A whole, whopping 3%. Sales usually increase from Jan every year, because housing is a seasonal business and fewer homes are sold in the dead of winter. Yet sales in Feb were down 24% from a year earlier. Every news outlet I've heard today is trumpeting the 3% and ignoring the huge YOY decline.
The media serves as a conduit for large corporations; they are not clearing houses for unbiased information. Large corporations do not do well in a recession, and therefore they have every reason to make sure news outlets spin as much happy-talk out of every development.
I see this as a classic pump-and-dump play. There is a lot of money sitting on the sidelines, and too many institutions have too much money still left in the market. They will pump prices and then dump their shares really soon. There are still HUGE problems left in the financial sector, so this isn't the bottom for sure. A dead cat bounce at best.
The article was focusing on the uncertainty and volatility of the market and made full mention of the data on both sides.
It's not enough that the data was mentioned, they must insist - insist - that everything sucks and is going to hell.
Nobody mentioned that everything was okay.
BTW - I agree that year-over-year is the important thing to look at here, not the month-to-month increase. I am interested to know if the year-over-year decline is larger in February than it was in January (based on the graphic in the linked story, it may very well be, since February 2007 increased from January 2007). What I really want to know is the momentum in year-over-year changes.
Ah yes. NPR. The infamous corporate mouthpiece.
DDP-
I realized how stupid my comment sounded after I posted it. I think NPR does a fairly good job reporting unbiased news. I guess that's why it was so striking to hear it over and over.
But here are some corporate headlines:
CNBC:
US Existing Home Sales Post Surprise Increase
CBS:
Housing Sales Up, Buck Losing Trend
Fox:
Existing Home Sales Rise 2.9% in February
CNN:
Home sales rise on biggest-ever price drop
WAPO:
Existing Home Sales Rise in February
WSJ:
Home Resales Up 2.9% Last Month
So called business news makes the MSM's political news coverage look marvelous. The rise in sales was due to forclosed properties moving mostly at 50 cents on the dollar. The dollar amount of home sales was down even as the number of sales were up.
This thing isn't going to be put back together again. The mortgage bubble is not coming back. It's dead.
The pumping of this home sales number is pure disinformation and propaganda. It makes Mission Accomplished look good. It is meanless without context and the context is partly what I said above. The numbers were spiked by sales of foreclosed properties at severe discount. Now every neighborhood where such a sale took place will see either lowered asking prices, in line with the latest sale or the homes won't sell.
Prices are going to come into line with the historic trend vs income. I am sorry I don't have the chart at hand but home prices set a record by a gigantic amount vs household income by 06 and it was unsustainable. It got there because any warm body could get a mortgage, often with no money down and in the bubble areas with a teaser ARM. They got ever last sucker and fool in and they of necessity the market collapsed. It was all as predictable as the sunrise.
Now only prime borrowers can get a mortgage and only if they put down 20%. In the meantime a million more are going to be forclosed on. There are a lot of those late game suckers who had not business buying a home they couldn't afford to be cleaned out.
Real Estate is sooooooooooooooooo 2005.
Other articles, like this one from the AP "Stocks Jump on Revised Bear Stearns Deal" make JP Morgan's quintupling of its offer for Bear the proximate cause of today's rally (although this article also mentions the real estate sales number in its subtitle). Reading deeper into the article, this explanation seems more plausible:
The latest Bear Stearns deal signals that investors' losses might not be as sizable as feared.
"The reason we've rallied the last three or four days is people are saying 'Hey, even if this paper is worth less than people think, the Fed is willing come in and buy it at some level,'" said Charlie Smith, chief investment officer at Fort Pitt Capital Group in Pittsburgh.
[...]
Still, the Fed's move to broker the Bear Stearns buyout has allowed investors the sense that not all the debt guaranteed by mortgages is "nuclear waste." It will be some time before Wall Street knows whether the write-downs on mortgages already taken will be sufficient.
"The fact that the Fed is willing to come in and buy it at some level makes people think 'OK, it's not zero,'" Smith said, referring to the troubled debt.
Of course, the Fed hasn't actually agreed to buy any mortgage-backed securities, though it has agreed to accept such securities as collateral (and did so in the Bear deal). But over the weekend the FT reported that the Fed has at least discussed buying some of these securities directly, with its EU and UK counterparts, and there was this AP report that I linked to here yesterday, "Pension plans take chance on mortgages", indicating that a couple of pension funds were starting to nibble at the depressed mortgage-backed securities market. In addition there was last week's news that the federal government had increased the GSEs' power to buyback its own mortgage paper, and today's WSJ reported that some former Countrywide execs, backed by Blackrock, are starting a fund to buy some depressed mortgage-backed securities.
Collectively, all that suggests that the MBS market is starting to thaw a little. If that were to continue, and the market became functioning again, then some of the big mark-to-market write downs would get revised upward, which would take some pressure of some big financial firms' balance sheets. Mortgage rates would also start coming down.
That's probably a better fleshing out of the bullish case for calling a bottom than just the mixed real estate sales data. Whether it's true or not, time will tell.
Rapier,
I haven't heard anyone in the mainstream business media deny that real estate values have to fall back into an equilibrium with average incomes. The consensus also seems to be that the sooner this happens, the better. Given that, the increase in sales along with the decrease in average prices reported today can be seen as good news, since they indicate that this process is underway.
Al, shut the fuck up.
Next.
Fred, I have never ever heard mention in the MSM or 'business' media that home prices were out of whack with income. Nor one politician, real estate agent or organization, Fed offical nor any bank official or any Wall Street spokesman or official or Foreign central banker, a group that has purchased $700 billion of GSE mortgage backed securities since 04 when prices and the bubble went seriously out of whack
It was all about monthly payments and the 'fact' that prices could only go up. The realists now know that prices have to reach a market clearing level. 24 months after the peak of prices, last August, suddenly the world discovered that there was a 'subprime' problem. On 7/0/07 Chuck Prince, CEO (former) of Citigroup said
"When the music stops, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing..."
It's great the market is starting to clear. In 3 or 4 years things might be in a more normal equilibrium. In a generation or two, hopefully never but then human nature doesn't change, another real estate bubble based upon too easy credit might arise again.
This rosy picture was the one that being peddled by snake oil salesman like Rush Limbaugh.
Then there's the always pathetic Hillary Clinton. She gave a speech today and very few noticed.
But in her endless efforts to pander, she suggested that a committee to solve the problem headed by Greenspan.
Of course, he's the one most responsible for this mess, so her suggestion is like recruiting the bartender to cure the alcoholic.
Then she would put Rubin on her famous committee to save the world. Never mind that Rubin is one of the leaders of Citigroup, which was one of the leaders in this subprime mess. Yes, this is the same company that had to go to Dubai begging for a handout. So this would be akin to recruiting an arsonist to put out a fire.
And you can bet that Rubin would make sure any government "solution" would bail out Citigroup at great taxpayer expense. Remember, Rubin is the same guy who phoned the Treasury Dept. suggesting a bailout of Enron.
So the mess we're in is indeed a big one, but one that would only be made far worse by Hillary Clinton.
I find it fascinating that almost every major news source quoted the monthly change in sales, but the annual change in price. Not the annual -23% change in sales.
MSM financial news is so incompetent. I would not go so far as to say biased --- that requires financial understanding. They are just so ignorant of basic statistics that they report the NAR spin without question.
But fine, everyone can go ahead and believe the housing market is bottoming. This just means more money for the short sellers.
Rapier,
Chuck Prince was a peckerhead, though in his partial defense, this lawyer-by-trade might have figured that Robert Rubin, the former Treasury Secretary/Goldman Sachs chief on his board and executive committee might tell him when to stop dancing.
Anyhow, some perspective:
"Plenty of Midwestern cities such as St. Louis never experienced much of a boom in the first place, so they won't have much of a bust, if any."
Essentially, in some areas the fundamentals of income to home prices never got out of whack. Home prices don't crash there because there was no bubble to begin with. In areas where it did, there will be a correction back to historical norms. This has happened with every other housing bubble in the US, and even the much larger bubble in Japan a few years back.
I happen to live in SoCal and the housing bubble is still bursting. According to the graphs I've seen, we've got at least another 15-20% price decrease on the median house price (or a 15-20% jump in median income) before we're in line with the historical norm.
Walker,
I read about the -23% YTY drop in the first several articles that I read yesterday. The markets rallied yesterday, likely using their own reading of the data, rather than the MSM's "propaganda", regardless. The article Matt brings up heavily focuses on the uncertainty and volatility in the market. The article even has charts going back until 2006 with home sales and another with prices.
Hell, all day yesterday CNN had articles outlining the suffering by the American consumer and an article titled "Don't Believe the Market Rally."
I would say over the last 6 months, the media has been excessively negative. The market rallied on news 2 sessions in a row. What is the media supposed to report when the markets rally? That they didn't? Must they constantly insist that the reasons for the rally are bullshit? What do some of you want?
I'm shocked, shocked to discover that the National Association of Realtors is suggesting that the bottom of the market may be near and that Now's The Time To Buy just before the spring home sale season starts this year.
The Baltimore Sun had a front-page story about this on Tuesday 3/25 that read like a slightly rewritten NAR press release. As best as I could tell, their big cause for optimism was that home sales were higher in February than in January of this year.
My understanding, though, is home sales are higher in February than January every year. December and January are the slowest months for home sales. People who close on houses in January were most likely shopping for them over the holiday season. Nobody does that unless there's some reason they need to move to a new house right away.
Comments closed April 07, 2008.
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Heads in the Sand
Can someone please explain to me what this post is all about? Is there someone out there claiming that "all our economic problems are solved" with the slight uptick in home sales?
Posted by Al | March 24, 2008 6:16 PM